Alone Together

Tata Motors is demerging its PV and CV businesses to unlock value and allow them to follow distinct strategies. Experts call it a logical progression

 tata group’s automobile arm, Tata Motors, is on course to de-merge its two broad business segments—passenger vehicles (PV) and commercial vehicles (CV). The Tata Motors board has approved the demerger with the aim of unlocking value, imparting agility, and boosting growth.

According to the company, the demerger is a logical progression from the splitting of the PV and electric vehicles (EV) businesses in 2022. This move is expected to empower the businesses to pursue their respective strategies to deliver higher growth with greater agility while reinforcing accountability. “Furthermore, while there are limited synergies between CV and PV businesses, there are considerable synergies to be harnessed across PV, EV, and JLR (Jaguar Land Rover) particularly in the areas of EVs, autonomous vehicles, and vehicle software, which the demerger will help secure,” said a company release. Experts say the company has been preparing the ground for this for quite some time.

Analysts at KR Choksey Research say they “expect this move [to] unlock value in each of these businesses and fetch higher valuation multiples”. According to Unnati Jadhav, analyst at the firm, Tata Motors’ “path towards deleveraging along with increased focus on the separate verticals of CV and PV post the demerger augur well for the long-term performance of the company”.

The demerger may take up to 15 months. But when completed, it is likely to create an Indian PV company that could be 2.5 times the size of market leader Maruti Suzuki (MSIL). If the FY23 numbers are anything to go by, Tata Motors’ PV entity’s revenue (including JLR) was more than `2.75 lakh crore—that is, 2.4 times that of MSIL’s at `1.17 lakh crore. In the first nine months of FY24, Tata Motors’s total revenue grew 32.5% year-on-year (YoY) to `3.18 lakh crore. In comparison, MSIL reported revenue from operations of `1.03 lakh crore .

One thing the demerger plan has done is spark a rally in the stock. It touched a 52-week high of `1,065 apiece on March 5. It has since moderated slightly, closing at `1,028 apiece on March 11.